People Become Less Interested When Everyone Is Offering Big Discounts

A report from Bloomberg on Hong Kong. “Banks in Hong Kong are aggressively cutting property valuations as the city’s housing market weakens, threatening to fuel a downward spiral in prices, according to brokerage CLSA Ltd. ‘The banks’ assessment is often a self-fulfilling prophecy, as lower valuations will mean less lending,’ analysts led by Nicole Wong wrote. ‘The government may also convert some private land supply into subsidized housing to take bigger control of housing supply,’ the analysts wrote. ‘Any more dramatic measures would be taken negatively and deepen the current price correction.'”

The Nikkei Asian Review on China. “China’s three-year property boom appears to be running out of steam as some of the country’s biggest developers slash prices amid a dimming economic outlook. ‘It is the beginning of a new round of price correction,’ said Alan Jin, head of property research for Asia excluding Japan at Mizuho Securities.”

“Jin also warned fears can spread fast among investors once more developers offer promotions. ‘People will become less interested in purchasing when everyone is offering big discounts,’ he said, leading to smaller transaction volumes and lower prices.”

“After Country Garden Holdings, China’s largest property developer by sales, reportedly cut prices by up to 30% over the weeklong national holiday last week, angry buyers who paid the full price smashed the showrooms of one of its property projects in southern Jiangxi Province, demanding a refund.”

“Country Garden is not the only Chinese developer who has slashed prices. Earlier this year, China Evergrande Group, the country’s second largest developer said it will give 12% discounts to buyers in selected cities. China Vanke, the third largest, last week cut prices by 36% on luxury villas it built in the southeastern city of Xiamen where housing prices almost doubled in the past three years.”

From The Print on India. “Once ranked among the country’s biggest real estate giants, the Amrapali Group is today struggling to pay its dues. On Tuesday, the Supreme Court ordered the arrest of three of its directors after they failed to hand over documents for a court-directed forensic audit of its accounts.”

“At its peak in 2015, the Amrapali real estate group claimed to have had around 50 projects spread across 24 cities. Its real estate portfolio included the residential Amrapali Sapphire and Amrapali Platinum in Noida, the Amrapali Empire in Ghaziabad, a commercial hub in Greater Noida, a township in Jaipur, a multiplex mall in Bihar and a five star hotel.”

“Now, however, it seems the group’s grandeur was just on paper. On 8 August, a Supreme Court bench of Justices Arun Mishra and U.U. Lalit, hearing the plea, warned the directors of Amrapali group that it would sell their properties if the group continued to delay its projects.”

“‘The real problem is that you have delayed giving possession of homes. Don’t try to play smart or we will sell each and every property of yours and render you homeless,’ the bench said. ‘You (directors) will have to look for your houses like you are making others wait for their homes. We will sell each and everything of yours.'”

From The Sun in the UK. “Steve Smith put his Hammer Hill House in Romsley, Shropshire on the market in November 2014 for £6.5 million. After he failed to attract any buyers, he dropped the asking price to £5.75 million. Mr Smith now expects to lose a lot of money on the property as he has shaved a further £1.8million off the property he bought for £2.2million in 2002. Steve says he has ploughed £4million into the lavish home.”

“He said: ‘Hammer Hill has had lots of interest with three serious buyers. The problem is because the chain is a lot bigger it only needs one of the homes in the chain to fall down and they all do. One person that wanted to buy it could not sell their own home.'”

“Jin also warned fears can spread fast among investors once more developers offer promotions. ‘People will become less interested in purchasing when everyone is offering big discounts,’ he said, leading to smaller transaction volumes and lower prices.”

That’s kind of the way it works, Jin-bo. FOMO and greed on the way up, FUD and an abundance of caution on the way down, littered with the bleached bones of speculators and FBs by the side of the trail. And we’ve got a LONG way down as the insane, QE-blown speculative bubble of recent years unwinds. But us “bitter renters” can watch it all go down with perfect equanimity and no small amount of schadenfreude.

It seems like we haven’t run out of handwringers over the global economic situation just yet. Don’t these people realize that the stock market always goes up, period?
——————————————
Trade tensions could trigger another global financial crisis, but investors appear complacent, IMF says
– Stock prices — particularly those in the U.S. — have hit record-high levels multiple times over the past year, which is an indication that investors have continued to take on risks.
– Yet the International Monetary Fund warned on Wednesday that “a further escalation of trade tensions, as well as rising geopolitical risks and policy uncertainty in major economies, could lead to a sudden deterioration in risk sentiment.”
– According to the organization, that could trigger “a broad-based correction in global capital markets and a sharp tightening of global financial conditions.”
Yen Nee Lee
Published 2 Hours Ago

Is Manhattan on the edge of a prime housing precipice?
Financial Times-5 hours ago
“We’re in the middle of a US housing slowdown, with Manhattan’s prime … Add to this a glut of high-value homes that developers are finally forced to release.

Years ago I made it to the MTV Spring Break in Panama City Beach, FL. I remember the beach being so flat that you could walk a hundred feet out into the water and it was only waist deep. I’m wondering how all those beach facing hotels will fare against the wind and the storm surge?

Analysts expect the weakest October in recent memory and see developers offering more price cuts after sales in 31 cities, monitored by property consultancy CRIC, fell 27 per cent year on year.

The bearish sentiment is also taking its toll on property stocks. The Hang Seng Mainland Properties Index has fallen to its lowest level since August 2017 and is down 17.5 per cent from its recent peak on September 21.

In Shenzhen, only 226 new homes were sold in the past week, down 49.3 per cent from the same period a year ago.

In one particular market I am watching, the median has been above $300k for 29 straight months. During the last bubble, it was 34 months. The median is actually closer to $400k this time, much higher than last time, so the duration above $300k will easily eclipse the 34 months.

Insofar as prices:incomes are concerned, this bubble (or extension of the last) is much worse. The idea that the fallout will not be as bad seems pure folly. If the last collapse is any indicator, it should be about 4 1/2 years before we see any bottom fishing.

This isn’t just a business cycle. It’s the biggest credit expansion in history. Unless a miracle is produced on a scale bigger than the China debt pile, there will not be a bigger next bounce. 4 years is just a blink.

They will not allow home prices to return to the historical mean (2X median income). In 2000, you could buy a house in LA for $120k. In 1985, a house in LA was $50k, those days will never come back.

Since 2013, the Fed’s intervention has restored prices to mania levels.

the massive intervention in 2009, had largely stabilized housing by early 2010.

Governments are deadset to never allow a correction. The government recently announced to increase the population to 50 million, by increasing immigration, in order to prop up the housing bubble

US Fed must put floor under home prices
Housing prices in the US must not be permitted to continue falling, says the chief investment officer, Bill Gross
The economy is financial asset-based, which is reliant on consumption– not production-based

the Federal Reserve through fiscal policy measures must halt the decline and put a floor under housing prices in order to stop the deterioration in this asset-based economy

This is something that truly cannot be permitted to continue

The Federal Reserve responded to the bubble collapse with unprecedented intervention to prop up housing values: the Fed dropped short-term interest rates to near-zero (i.e. ZIRP, zero-interest rate policy) and bought roughly $2 trillion of mortgage-backed securities in two waves. (That’s about 20% of the entire U.S. mortgage market.)

” ‘The real problem is that you have delayed giving possession of homes. Don’t try to play smart or we will sell each and every property of yours and render you homeless,’ the bench said. ‘You (directors) will have to look for your houses like you are making others wait for their homes. We will sell each and everything of yours.’ “